Macroeconomics Turkey Case Study 2022

Running head: MACROECONOMICS
Macroeconomics
Name of the Student
Name of the University
Student ID

MACROECONOMICS1
Table of Contents
Answer 3..........................................................................................................................................2
Answer 6..........................................................................................................................................3
Answer 4..........................................................................................................................................4
Answer 5..........................................................................................................................................5
Reference.........................................................................................................................................9

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Answer 3
Price level of an economy depends on each and every goods and services traded in an
economy of a country. It is an aggregate representation of prices of all goods and services in an
economy. The quantification of price level in an economy is done by Consumer Price Index
(CPI), which is the weighted average of basket of consumer goods and services. Increase in
value of CPI is called inflation (Baker 2016). Therefore, if any goods and services in a basket
changes then the CPI change too. It can be thus said that price change of any of the goods and
services in the consumer basket would impact the CPI value and thereby the price level would
change too. In this case, the Turkey used to export vegetables to other countries after meeting the
domestic demand for vegetables of the country (Bognanni and Young 2019). Hence, there is no
shortage in supply of vegetables in Turkey. However, due to outbreak of Coronavirus most of the
countries has shut down their international borders to contain the spread of the virus (Jiang and
Wang 2019). Due to these export demand for Turkish vegetables has declined. Therefore, having
no option of exporting the vegetables are made domestically available for sales. Due to this, the
domestic supply of vegetables has increased. As a result, the price of vegetables in the domestic
market declined as per the theory of demand and supply. With fall in price of vegetables the CPI
will fall too since assuming, that price of no other products has changed. Therefore, fall in CPI is
means there is fall in price level of the economy. This can be illustrated with the help of
aggregate demand and supply model. The rise in supply of vegetables in the economy will
increase the aggregate supply of the economy causing AS curve to shift from AS to AS*. As a
result, the output of the economy will rise from Y to Y* as show in figure 1. There is no change
in demand and hence AD curve has not shifted. In the figure with rise in output supply the price
level decreases to P* from P (Shaikh, Shah and Shaikh 2017). Hence, it can be seen that selling

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the vegetables meant for export market in the domestic market would increase supply and
impacted the price level of the economy and causes to decline. Therefore, selling vegetables in
the domestic market causes price level top
fall.
Figure 1: Impact of selling vegetables in domestic market
Source: (Created by the Author)
Answer 6
Inflation rate is percentage increase in price level of goods and services in an economy.
High inflation rate lead to high cost of living and lowers the value of money (Ndou, Gumata and
Tshuma 2019). Hence, with rising inflation rate individuals of an economy think that their
purchasing power is falling even with rise in wage rate. Therefore, the monetary authorities and
the government of a country intervenes in the economy by implementing macroeconomic
policies to cut the inflation rate. The macroeconomic policies that are used are known as fiscal
policy and monetary policy (Bianchi and Ilut 2017). To cut the inflation rate, the economy of a
country required to be contracted. In order to contract the economy contractionary policies